A Guide to Socially Responsible Investing

Introduction: As a former financial advisor for a large broker dealer, I specialized in helping non-profit organizations invest in investment products that reflected their social values.

My surprise was that my company had very little information on socially responsible investing. The only piece of literature we had was a list of 25 to 30 mutual fund companies that sold at least one product that fell under the larger umbrella of “socially responsible investing,” but there was no other information.

I quickly realized that there was a limited amount of information available. There seems to be a persistent misconception that investing in SRI results in a loss of investment performance, when in fact the opposite is true. Companies typically perform better financially when their corporate policies promote equality, the environment, and sound management practices.

Once this is widely acknowledged, larger institutions will begin investing more time, resources, and effort in expanding SRI research and product development.

Brief background: Socially responsible investing began during the slave trade in the middle to late 1700s, when investors were encouraged not to participate. Later, it became associated with religious institutions that advised investors to steer clear of “sinful” businesses that produced tobacco, guns, or liquor.

Socially responsible investing took on more social issues like women’s equality, civil rights, and labor equality in the 1960s. In the 1970s, environmental issues and global social issues like South Africa’s apartheid were added.

Positive investments in the environment, social justice, and corporate governance (commonly referred to as “ESG,” although I will use the SRI label because it is still the most widely recognized term as of this writing) have increasingly been included in SRI since the 1990s.

Trends According to a recent Social Investment Forum study, SRI is still expanding at a healthy rate. SRI assets reached over $3 trillion at the beginning of 2010, up more than 380 percent from $639 billion in 1995, when the first report covering these statistics was released by the Social Investment Forum.

SRI assets have increased by 34% since 2005, while assets that are traditionally managed have only increased by 3%. In addition, traditional, professionally managed assets increased by only 13% while SRI assets increased by less than 1% from 2007 to the beginning of 2010 (during the recession). Today, approximately one dollar out of every eight is invested in a socially responsible investment.

The Social Investment Forum credits client demand and, to a lesser extent, legislation and regulation for the majority of this expansion.

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